In early January, the Federal Trade Commission (FTC) proposed a new rule that could potentially prohibit the use of most noncompete agreements. In its proposal, it solicited public comments, which were due by April 19. 

The Big “I" has now submitted a comment letter that expresses opposition to the regulation as proposed, outlines specific substantive concerns, and questions the FTC's asserted authority to issue such a rule.  

In its comments, the Big “I" wrote that its “members have significant interest in the proposed regulation and worry the proposal will threaten the competitiveness, viability, and value of their businesses. The value of insurance agencies is rooted in the goodwill they develop in their communities and the relationships, client bases, and confidential knowledge about their customers that is built and nurtured over many years." 

The Big “I" went on to say that “independent insurance agents and brokers often use reasonably crafted noncompete clauses to protect the investments they have made in the course of building their businesses. Our members fear the Commission's sweeping proposal – and particularly its sale-of-a-business provisions and its application to senior executives and highly paid workers – will needlessly erode their value." 

The comment letter outlined three specific areas of concern: restrictions on the sale-of-a-business exception, application of the rule to senior executives and highly compensated workers, and the proposed rescission of existing noncompete agreements.  

The FTC's proposal includes a limited exemption that would allow a noncompete agreement to be applied to a seller of a business if that person holds at least a 25% ownership interest in the business being acquired. The Big “I" welcomed the sale-of-a-business exception but questioned the inclusion of this arbitrary threshold. The letter says that “it is incorrect to conclude that a 25% stake in an enterprise is required for a buyer to have a legitimate interest in protecting the value of the business acquired through the use of a noncompete clause. Even small stakes in businesses can have a considerable dollar value, and buyers of businesses should be able to protect their investments and the goodwill they are purchasing through the use of narrow and reasonably crafted noncompete clauses." The Big “I" urged the FTC to delete the 25% ownership restriction. 

The Big “I" also argued that any final rule should focus exclusively on low-wage workers and not apply to senior executives and highly paid workers. Lastly, the Big “I" comment letter said that “any final rule promulgated by the Commission should apply prospectively and not affect any non-compete clauses currently in place. Altering terms after the fact distorts existing contracts and the equilibrium that was achieved at the time they were entered into." 

The FTC is expected to review these comments and others before promulgating a final rule. That rule is certain to be challenged—the U.S. Chamber of Commerce has already signaled that it will do so—and will ultimately be decided by the courts. 

The proposed FTC rule will be a major talking point during the 2023 Big “I" Legislative Conference and is one of the five issues covered in the virtual issues briefing.

Wes Bissett is Big “I" government affairs senior counsel.